-0.55(-0.89%)

-7.20(-0.54%)

+539.73(+3.99%)

+0.0008(+0.1306%)

+0.0000(+0.0005%)

Murdoch casts off newspapers to uncertain future

News Corporation Chief Rupert Murdoch holds up a copy of the newly launched 'The Sun on Sunday' newspaper as he leaves his London home on February 26, 2012. Newspapers may be Murdoch's first love, but in the planned breakup of his empire he is acknowledging the news business has failed to keep pace with his high-flying entertainment assets.

Newspapers may be Rupert Murdoch's first love, but in the planned breakup of his empire he is acknowledging the news business has failed to keep pace with his high-flying entertainment assets.

The split of Murdoch's massive News Corp unveiled Thursday would create separate companies for the huge entertainment division and the struggling publishing business.

The publishing arm has some of the most prestigious names in the industry, including The Wall Street Journal and Times of London, but has been hurt by a move away from print. It also took a hit from a phone hacking scandal in Britain, which led to the closure of News of The World.

"This move is a ratification that News Corp's two businesses -- entertainment and news -- have radically different trajectories, and that those trajectories are only widening," said Ken Doctor, an analyst with the research firm Outsell.

Some analysts say that the news operations are an "albatross" that drag down the value of the empire.

Publishing accounts for about one-fourth of News Corp revenues, but some say the enterprise value of these operations is only about seven percent of the total because of slow growth and other negatives in the news business.

Doctor said that once the firm is split, "the harsher light of day will shine on the publishing operation. That operation is in line with its peers, in decline."

He said Dow Jones, which operates The Wall Street Journal, is a "bright spot" that offsets some of the losses of other newspapers.

Murdoch says he would be chairman of both companies after the split, insisting that the news business would not be an unloved stepchild.

The Australian-born magnate who built his empire from a single newspaper in Adelaide, said he still believes the news business can be profitable.

"The answer in one word is digital," he told a conference call.

"People are buying fewer papers but they are equally getting their news in many other forms. People will pay for news, it's the most valuable commodity in the world. People need to know what's going on."

But Richard Greenfield of BTIG Research said that "the prospects of News Corp's publishing assets are worsening by the day... particularly outside of Dow Jones, with the financial stress of the ongoing News of the World phone hacking investigation making matters even worse."

"While Rupert Murdoch remains a diehard supporter of newspapers, we believe he has come to accept the realities of the modern day publishing business," he added.

There was no word on who would head the publishing operations, which include The Wall Street Journal, Dow Jones, HarperCollins, The New York Post, and The Daily, as well the Times of London and other assets in Britain and Australia.

The move comes with Murdoch's empire under pressure from the phone-hacking scandal in Britain that resulted in the closure of the company's flagship News of the World tabloid and the resignation of several senior executives.

Murdoch said the move "is not a reaction to anything in Britain" but had been under study for years as a way to boost shareholder value and simplify management.

Deputy chairman Chase Carey will be the chief executive of the entertainment arm, led by the 20th Century Fox studios and Fox television properties.

Analyst David Joyce at Miller Tabak said the split "would help Chase Carey focus on the entertainment assets and not be distracted by the lingering phone hacking scandal in the UK."

Joyce said that over the next five years, he thinks the publishing operations could be taken private, with Murdoch and his family "in full control."

Doctor said a number of questions remain about the split, such as which unit would get the News Corp name and how cash would be allocated.

"While all newspapers are challenged by the deep print ad slide, this collection features the Times of London/Sunday Times and New York Post, both of which are losing buckets of money," he said.

"They are a major drag on profits, which are already meager and only more threatened going forward. That's why we're hearing this au courant term: zombie stock."

To make the news company profitable, Murdoch would need to "move fairly quickly to jettison moneylosers," and possibly revisit the notion of a "trust" for the London Times, he said.